The 50 per cent capital gains tax discount has been part of the Australian tax system since 1999. From 1 July 2027, it is being replaced with cost-base indexation and a 30 per cent minimum tax on net capital gains. This applies across all CGT assets held by individuals, trusts and partnerships — shares, investment properties, managed funds, ETFs, and private business interests. It is not a property-specific measure.

Under the current rules, if you sell an asset held for more than 12 months, only half the gain is taxable. The new approach adjusts your original cost base upward by CPI before calculating the taxable gain, then applies a 30 per cent minimum tax to whatever remains. The Government frames this as taxing only your “real” gain after inflation. In practice, whether the new rules are better or worse than the old ones depends on how long you have held the asset and what inflation has averaged over that period. For most medium-term holders, the tax bill goes up — sometimes significantly.

How the transition works

This is the part that causes the most confusion, so it is worth being precise. There are effectively three scenarios depending on when you bought and when you sell.

Scenario one: you bought before 1 July 2027 and sell before 1 July 2027. Nothing changes. The existing 50 per cent discount applies to the full gain as it always has.

Scenario two: you bought before 1 July 2027 but sell after 1 July 2027. This is where many existing investors sit, and the treatment is a split. The gain is divided at 1 July 2027. The portion accrued before that date is still eligible for the 50 per cent discount. The portion accrued after that date is subject to the new indexation regime and the 30 per cent minimum tax. So existing holders are partially protected, but not fully. When you eventually sell, part of your gain will be taxed under new rules. To calculate the split, you will need to establish a market value for your asset as at 1 July 2027, either through a formal valuation or an ATO apportionment formula.

Scenario three: you buy from 1 July 2027 onwards. The new regime applies in full from the outset. No discount, just indexation and the 30 per cent minimum tax.

This also extends to pre-1985 assets, which is a significant and somewhat surprising element of the reform. Gains that accrued before 1 July 2027 on pre-CGT assets remain exempt, as they always have been. But any appreciation after that date will be caught by the new rules. Holders of long-standing pre-CGT assets who assumed they would never face tax on sale need to be aware of this.

Superannuation funds are not affected by any of this. Super continues to receive a one-third CGT discount for assets held over 12 months, which makes superannuation structurally more attractive for long-term investment than personal names or family trusts under the new regime. Investors in new residential builds can also elect to use either the 50 per cent discount or the new indexation method, whichever produces the better outcome at time of sale.

The 50 per cent discount continues to apply to all gains arising before 1 July 2027, which creates a genuine planning window for clients sitting on large embedded gains. The question is whether realising those gains before that date makes sense, against the tax cost of pulling them into an earlier income year. That is not always the right answer. Accelerating a large gain can push you into a higher bracket or interact with other income in ways that need to be carefully modelled.

Capital losses also become proportionally more valuable under the new regime. If you hold investments sitting at a loss, there may be merit in crystallising those before 30 June 2027 to bank them as offsets against future, higher-taxed gains. Superannuation looks increasingly attractive as a structure for holding long-term investments given the one-third discount inside super remains intact.

From 1 July 2027, the ability to offset rental property losses against wages and salary income will be removed for established residential properties purchased after 7:30pm AEST on 12 May 2026. Losses from those properties will be quarantined and can only be offset against other residential property income or capital gains from residential property. Excess losses carry forward to future years but do not reduce your broader taxable income in the year they arise.

If you already owned an investment property, or had a binding contract in place before Budget night, you are grandfathered. Your existing arrangements remain unchanged until you sell. The changes do not affect commercial property, shares, or other non-residential asset classes. New residential builds are exempt entirely and retain full negative gearing deductibility. Properties inside superannuation funds, including SMSFs, are also excluded.

A transitional note

For properties purchased between Budget night and 30 June 2027, negative gearing against any income is available until 30 June 2027. From 1 July 2027, those properties move to the quarantined treatment. It is a brief transitional concession but does not change the long-term position.

This reform will generate more work and more difficult conversations than any other measure in this Budget. From 1 July 2028, trustees will pay a minimum tax of 30 per cent on the taxable income of discretionary trusts. Beneficiaries (other than corporate beneficiaries) receive a non-refundable credit for the tax paid by the trustee, which can reduce their own income tax liability. Crucially, non-refundable means any excess credit is lost. It cannot generate a refund.

In plain terms, even if you distribute trust income to a family member on a low tax rate, the trust has already paid 30 per cent on that amount. The income-splitting strategy that has historically driven trust distributions to adult children studying or working part-time, or to a spouse with little other income, effectively stops working for those beneficiaries. The bucket company path is specifically targeted too. Corporate beneficiaries receive no credit for tax paid by the trustee, which creates double taxation on that path.

Who is neutral, and who is not

Around 350,000 active small businesses operate through discretionary trusts. Of those, approximately 40 per cent are not expected to pay any additional tax or need to restructure, because their distributions already go to beneficiaries on marginal rates of 30 per cent or higher, that is, adults earning above roughly $45,000. For those clients, the change is broadly neutral. For clients distributing to lower-rate beneficiaries, the impact is real and ongoing from 1 July 2028.

Not all trusts are caught. Fixed trusts, widely held trusts, special disability trusts, fixed testamentary trusts, complying superannuation funds, deceased estates and charitable trusts are all excluded. Some income is also excluded, including primary production income, income relating to vulnerable minors, and income from assets of discretionary testamentary trusts existing at Budget night. New discretionary testamentary trusts established after 12 May 2026 do not receive that protection, a material consideration for anyone currently reviewing their will.